Merger And Acquisitions (M&A) In Turkey: Roles Of Law, Investment And Accounting Firms

The number of merger and acquisition (the “M&A”) transactions in Turkey are increasing from year to year. In that respect the question of which external M&A consultants an investor needs to engage with in order to realize a successful M&A deal should be raised at the pre-deal stage of the M&A process. Taking into consideration the arising role of the M&A deals in Turkey, we would like to emphasize on this subject and, in particular, on the key actors of such M&A deals supportive participants as law firms, investment banks and the accounting firms.

The reason we chose this subject is that the responsibilities of law firms, investment banks, and accounting firms in the M&A deals are not reviewed in legal online and offline resources often as the rights and obligations of the parties of the M&A deals are, however, the role of these participants for both acquiring and acquired companies is hard to overestimate.

Concerning the role of a law firm Turkey in M&A deals, it can be stated that international law firms having the expertise on multi-jurisdictional M&A transactions play an increasingly important role in M&A projects for the both seller and the buyer sides. The M&A law firms are considered significant elements to the success of M&A projects.

The law firms are often assigned by their clients to control and manage M&A projects on behalf of its’ clients and it is vital to understand the critical success factors for M&A projects from the perspective of the expert lawyers so that such projects can be realized and executed productively.

As regards to the investment banks, one of the branches of investment banks services is corporate finance, which includes helping customers raise funds in capital markets and giving advice on the M&A, making business valuation, holding negotiations with a merger target, generating pricing and structuring of transactions, as well as conducting the relevant procedures and implementation of the M&A deal and, last but not least, providing “fairness opinions” attesting to the fairness of a transaction.

Corporate finance division of investment banks and its advisory group are following up the M&A deals from the negotiation stage to closing of the deal. In such events, banks outsource law firms’ services for the conduction of the legal part of the deal and accounting companies’ services for the accounting part of the deal. Usually big and middle size Turkish law firms and accounting firms have separate departments or practice groups specializing in the M&A deals.

As concerns to the procedure of the M&A, which an investment bank is involved into, it starts with the preparation of a pitch book of financial information to the M&A client and if the client chooses one of the targeted deal (the client can also approach an investment bank directly with a transaction in mind), the bank may set up management meetings, do valuation work to set price expectations. If the investment bank is approached by the seller, the bank can conduct an auction process with several rounds of bids, as a result of which buyer is determined.

It is noteworthy that after the determination of the buyer, the bank manages negotiations of the parties on the terms and conditions of the deal including but not limited to the discussions on merger and reorganization agreement, pre-composition of the board of directors and management and other respective documentation. Generally, such meetings are held with participation of lawyers, who draft the legal documents reflecting statements and decisions of the parties and advise the parties on legal issues, while accounting firms are not often involved in this process. At the next stage work of law firms and accounting firms becomes more intensive. Law firms in parallel with the accounting firms conduct a legal and financial due diligences respectively. The participation of the technical specialists for conducting operational due diligence can be also required. At this stage it is important for law firms and accounting firms to receive maximum documents and information from the target company in order to look at the seller’s accounting, legal issues, market dynamics and other related issues and to evaluate compliance of the target company, trueness of their statements and accuracy of the financial statements as the accounting information and legal documentation reduce uncertainty in the target’s value. Due diligence results may impact the decision of the client to acquire or not to acquire the target company. Risk assessments are made based on the due diligence documentation by the legal team and submitted to the evaluation of the buyer side.

Before to pass to the stage of approval of the M&A deal and sign the determinative agreements, the banks may deliver a “fairness opinion” proving that the M&A deal is fair and nobody is overpaid or underpaid. The banks together with the accounting firms consult the parties on how to allocate the purchase price and check whether the subject transaction meets requirements for a tax-free reorganization.

It is worth to note that usually the accounting companies do not evaluate and determine whole value of the target company. This role belongs to the investment banks. The accounting companies allocate the purchase price and value intangibles as customer relationships, patents and intellectual property. The accounting firms also do not provide financial guarantee while some investment banks can offer this service to the clients by cooperating with other departments within their bank and can also offer clients to sell their companies through an initial public offering.

If the parties come to agreement, all the final transaction documents are executed. At this point the bank’s work finishes as after the parties executed the final agreements, each of the party shall perform its obligations under the documents signed, i.e. preparing and filing the corporate amendments, related general assembly meetings, preparing and filing the necessary applications to the Competition Board and other governmental authorities (i.e. Energy Market Regulatory Authority), if applicable, and preparing and realizing the reorganization plan. It is recommendable to realize these stages with the full support of the law firm who will advise of the compliance of the documents.